Watchdog needs to bite harder

FOR Sam Waksal's sanity, let's hope the poor man doesn't have access to the British media in his Pennsylvania jail cell.

If he follows securities regulation in the UK, he will be cursing his bad luck in being born American.

Waksal is currently serving seven years for insider trading. His downfall ultimately led to the criminal conviction of American lifestyle guru Martha Stewart. Waksal is also forking out £2.4m in fines and restitution.

Two weeks before Waksal began his sentence, the Financial Services Authority chalked up a victory against insider trader Peter Bracken. His punishment? A £15,000 fine.

The FSA maintains that the penalty fits the crime. 'That's a lot of money for a reckless moment,' said an official.

A close watch of the dealing screens hints that insider trading may not be so unusual. Shares often rise dramatically just hours or days ahead of the announcement of a takeover. Good luck? Perhaps, but paltry fines such as Bracken's hardly deter would-be cheats.

Dealers certainly hit the jackpot on the afternoon of May 27. Many began buying Marks & Spencer just hours before retail entrepreneur Philip Green announced plans to buy the company, sending the shares into orbit. Talk about luck.

In fact, many - including M&S chief executive Stuart Rose - had been quietly buying shares in M&S in the weeks ahead of Green's announcement.

Rose bought a parcel following a conversation with Green. Rose's mate Michael Spencer - the boss of broker- dealer ICAP - bought a chunk after meeting with the M&S boss.

The FSA quickly cleared Rose and Spencer of any wrongdoing. But the brazenness of Rose and Spencer implies the perception of a toothless regulator. Would experienced City hands take such a risk in a more heavy-handed regulatory regime?

Such arrogance recalls the attitude of NatWest bank during the Blue Arrow scandal of the 1980s. A lawyer involved in that case recalls a NatWest official asking what right the Department of Trade and Industry had in questioning the (once-mighty) NatWest Bank.

The FSA has greater responsibilities than did the DTI in those days, but seems reluctant to use its full range of powers.

Consider Britain's Enron trio - former London-based employees of NatWest charged by US authorities in connection with the collapse of the energy trader.

Upon learning of the American allegations they presented themselves to the FSA assuming that British authorities would investigate, and prosecute if necessary.

Their lawyer says the FSA has taken no action. Next week, the men face extradition hearings. The US crimes of which they are accused carry jail sentences of up to 35 years.

Since acquiring expanded powers in 2001, the regulator has launched only one criminal investigation. Criminal probes come only in cases of extreme ' recklessness', said an official. Or when the FSA is likely to win - more difficult in a criminal case where the burden of proof is high.

America's Securities and Exchange Commission can only pursue civil investigations. Eliot Spitzer, attorney general for the state of New York, has taken the lead in pursuing Wall Street's villains.

He is not without critics. Many fear that a future in politics is what drives Spitzer.

But a bit of competition between the regulators ensures that misbehaviour doesn't fall through the cracks.

Of course, Spitzer is aided by plea bargaining - the promise of lighter sentences for small-time criminals. Their testimony hooks the bigger fish.

It's an unused technique here and many lawyers fear that plea bargaining might prompt the innocent to plead guilty to avoid crippling legal fees.

But the testimony of accomplices may be the only way to nail perpetrators of hard-to-prove securities violations.

Waksal made it easy for prosecutors. He pleaded guilty, possibly to stave off the prosecution of family members.

Lawyers believe the FSA has sufficient power. But it can't hesitate to use it. Regulators must become more active and open when pursuing high-profile figures.

Win or lose, reputational damage to alleged offenders will serve as a deterrent.

And more punishing fines for those found guilty wouldn't hurt.